WTI-Brent Spread Shrinks to Tightest in Two Weeks

West Texas Intermediate’s discount to Brent shrank to the narrowest level in two weeks as the U.S. economy improved more than forecast in the third quarter and supply slid amid rising demand.

WTI capped the longest rally since August. The U.S. grew the most since early 2012, and jobless claims unexpectedly fell to a two-month low, government data showed. The spread has tightened more than $4 in three days as refineries processed more crude, trimming stockpiles, and TransCanada Corp. (TRP) said it will start a pipeline to Texas from Oklahoma next month.

“Stronger growth in the U.S. is very positive for crude demand,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant. “With the increase in refinery production and draws in crude inventories, you’ll see the narrowing of the spread.”

WTI for January delivery gained 18 cents to $97.38 a barrel on the New York Mercantile Exchange, the highest settlement since Oct. 29. The volume of all futures traded was about 7.4 percent below the 100-day average at 3:40 p.m. Prices have advanced 6.1 percent this year.

Brent slid 90 cents, or 0.8 percent, to $110.98 a barrel on the London-based ICE Futures Europe exchange. Volume was 4.9 percent below the 100-day average. WTI’s discount to Brent tightened to $13.60, the narrowest since Nov. 19.

WTI-Brent

WTI bucked the decline by 19 of the 24 commodities in the Standard & Poor’s GSCI Index, including Brent, gold and wheat. The index slipped 0.2 percent.

“With strong refinery runs and inventory draws, crude is moving on its own fundamentals,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “You are seeing the unwinding of the Brent-WTI spread.”

Brent, the European benchmark, dropped for a second day after European Central Bank President Mario Draghi said that financial-market developments and low domestic demand may hurt the euro area’s economy.

U.S. gross domestic product grew at a 3.6 percent annualized rate last quarter, up from an initial estimate of 2.8 percent, Commerce Department figures showed. It was the strongest showing since the first quarter of 2012. The median forecast of 77 economists surveyed by Bloomberg predicted a 3.1 percent gain.

Jobless Claims

Jobless claims decreased 23,000 to 298,000 in the week ended Nov. 30, the Labor Department said today. The reading, which included the week of Thanksgiving, was the lowest since the first week in September, when the Labor Day holiday played havoc with the figures.

“A better economy will lead to stronger oil demand and higher prices,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “We are seeing the narrowing of the Brent-WTI differential with the WTI moving higher. Yesterday’s inventory report was bullish.”

U.S. crude supplies fell for the first time in 11 weeks in the seven days ended Nov. 29, tumbling 5.59 million barrels to 385.8 million, according to the the Energy Information Administration. Supplies at Cushing, Oklahoma, the delivery point for WTI, declined 18,000 barrels to 40.6 million. It was the first decrease in eight weeks.

Refineries boosted their operating rate to 92.4 percent, the most since September. Weekly petroleum consumption climbed 1.7 percent last week to 20 million barrels a day, the EIA, the Energy Department’s statistical arm, said yesterday.

Cushing Inventories

Cushing supplies may continue to drop amid the expansion of pipeline capacity to move supply to the Gulf Coast, said Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC.

“The Brent-WTI spread will continue to narrow,” Finlon said. “It’s clearly turned the corner.”

TransCanada said Dec. 2 that it will begin operating the southern leg of its Keystone XL pipeline to the Gulf on Jan. 3, shipping crude to Port Arthur, Texas, from Cushing. Plans show it will be able to move 700,000 barrels a day of crude to Port Arthur, home to 6.1 percent of U.S. refining capacity.

Implied volatility for at-the-money WTI options expiring in January was 16.4 percent, down from 17.2 percent yesterday, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 467,139 contracts as of 3:39 p.m. It totaled 830,979 contracts yesterday, the most since Nov. 14. Open interest was 1.65 million contracts.

To contact the reporter on this story: Moming Zhou in New York at mzhou29@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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